Earnings Preview: Arch 3Q profits seen lower

ST. LOUIS -- Arch Coal Inc., one of the world's biggest coal producers, is scheduled to report earnings for the third quarter before the market opens on Friday.

WHAT TO WATCH FOR: Analysts may be especially interested in Arch's performance in recent months because of the headwinds coal miners have faced from weaker demand in the global economy. The coal industry and its stocks have been battered as utilities switched to cheap natural gas from coal to generate electricity. Natural gas prices earlier this year reached the lowest levels in years because of booming production. Lately those prices have risen, buoying optimism that power plants increasingly will switch back to coal.

Arch's latest earnings may reflect its June announcement that it was laying off about 750 workers in the Kentucky, Virginia and West Virginia coalfields. Arch blamed the move on market pressures and a challenging regulatory environment that it said has pushed U.S. coal consumption to a 20-year low.

Among the first of the coal sector's big players to report each quarter, rival Peabody Energy _ the world's biggest private-sector coal company _ on Monday said its third-quarter profit plummeted 84 percent, marking the third quarter in a row it posted lower net income. But the company, which had adjusted results for the July-September period that still topped Wall Street expectations, said it sees the global market stabilizing.

Peabody projected that U.S. coal demand will decline by about 120 million tons this year but insisted that most of that drop-off already has happened.

Arch this week got a legal victory in Montana, where the state's Supreme Court ruled that a board headed by the governor didn't violate the state Constitution when it leased 587 million tons of coal without an environmental review. But the high court, affirming a lower court ruling in a lawsuit brought by the Sierra Club and other groups, found that environmental studies still must take place before Arch can mine more coal.

WHY IT MATTERS: On the heels of Peabody's relatively bullish outlook about global coal markets, analysts likely will be eager to hear whether Arch plans any additional pullbacks or alters its earnings guidance for this quarter and the rest of the year.

WHAT'S EXPECTED: On average, analysts polled by FactSet expect Arch to report an adjusted loss of 15 cents per share on revenue of $1.02 billion.

EARLIER SHOWING: Arch had a loss of $435.5 million, or $2.05 per share in the second quarter, compared with a profit of $6.3 million, or 4 cents per share, a year earlier. Excluding one-time costs, Arch reported an adjusted loss of $22 million, or a dime per share _ better than the loss of 18 cents expected on Wall Street.

Arch's second-quarter revenue rose 8 percent to $1.06 billion.

LAST YEAR'S QUARTER: During last year's third quarter, Arch's profit fell well short of expectations, partly because of a mine closure and Midwest flooding. Net income was $19 million, or 9 cents per share, down from $46.7 million, or 29 cents per share, a year earlier. Adjusted income was 8 cents per share, still short of the 22 cents per share that analysts forecast. Revenue rose 37 percent to $1.20 billion.